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Dollars to dimes

Yesterday, the US Dollar hit its lowest point ever against the New Zealand Dollar.

In that one sentence, you can see encapsulated much of the financial pain and difficulty that developers like me have been experiencing for quite some time. Many people don't realize that different countries use different currencies, and that those currencies' values change over time in relation to each other. What this means is that when someone pays me some amount in US Dollars, I actually receive a different amount in New Zealand Dollars (my local currency). The amount I receive depends on a floating, variable rate called an "exchange rate", which is the amount a bank will pay for a foreign currency, and which is affected by all sorts of economic factors.

For the last five years, the US Dollar has been in a kind of freefall against most other currencies, as the US economy flirts around the edge of international collapse. This has meant that US currency has been worth less and less - but most people probably don't realize *how much* less. Well, as a matter of interest for myself, I did a comparison yesterday. On July 18 2002, if someone had paid me US$1000, I would have received NZ$2039.15. Five years later, the same US$1000 would have yielded NZ$1250.93 - that's a difference of $788.22, or well over a third. My New Zealand dollars still buy me pretty much what they bought me five years ago (inflation is pretty low over here), but I'm getting far fewer of them. Standard economic wisdom has it that I should simply increase my prices to cover the currency changes, but if I did that, a US$150 license would now be costing close on US$250, and most customers simply won't wear increases like that. What's more, my so-called "business model" has traditionally made it quite difficult for me to increase prices in any event, because I have always felt it was a matter of honour to accept any price I had previously advertised.

By contrast, if someone had paid me EUR1000 in 2002, I would have received NZ$2024.29, whereas now I would receive NZ$1724.13 - still a drop (reflecting the relative strength of the New Zealand economy), but nothing like as severe a drop as the USD, where more than a third of my income has simply vanished in a puff of banker's logic.

I bet most people have never even thought about things like this - after all, not many people really do much in the way of international transactions... But for people like me, for whom almost every transaction is international, it's quite a serious issue, and there's no sign of relief on the horizon. So, we tighten our belt a little more and eat out a little less... <grin>.

Important disclaimer: This is not intended as any form of solicitation of support from my users, who have been generous and kind beyond my expectations: it's just an exposition of a problem most people probably aren't even aware exists, and is provided purely as an insight.


-- David --

Posted: Thursday, July 19, 2007 2:56 PM by David Harris


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